Manufacturing showing signs of recovery

The U.S. domestic manufacturing sector is showing signs of health and continued recovery, according to the Manufacturers Alliance /MAPI quarterly report that analyzes 27 major industries.
“A recovery is clearly well under way, and the industrial rebound is stronger than that in the general economy,” said Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance/MAPI and author of the analysis. “Consumer spending has returned to moderate growth, and the exceptionally severe winter prompted strong gains in non-automotive durable goods like clothing and utilities. An equally strong contributor is the swing in inventories. Since the beginning of the year, manufacturing has added about 100,000 jobs. Production grows faster than sales when firms move to less liquidation and then to rebuild inventories.”
Manufacturing industrial production, measured on a quarter-to-quarter basis, grew at a 7 percent annual rate in the three months ending April 2010, after expanding at a 6 percent annual rate in the three months ending January 2010. MAPI predicts the trend will continue, increasing 6 percent overall in 2010 and 6 percent in 2011.
Production in non-high-tech manufacturing expanded at a 6 percent annual rate during the February-to-April 2010 period. According to MAPI’s most recent economic forecast, non-high-tech manufacturing production is expected to increase approximately 5 percent both in 2010 and in 2011. High-tech industrial production rose at a 28 percent annual rate in the February-to-April 2010 time frame. MAPI anticipates that it will post strong 18 percent growth in 2010 and 15 percent growth in 2011.
There was a significant upward trend in the February-to-April 2010 figures for the various components of the manufacturing economy. Nineteen of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, seven more than reported in the previous three months ending in January 2010, and one industry remained flat. Iron and steel production grew by 101 percent in the three months ending in April 2010 compared to the previous three months, while oil and gas well drilling activity advanced by 100 percent in the same window.
The largest drop came in private nonresidential construction, which declined 22 percent, while engine, turbine, and power transmission equipment production experienced a 14 percent decline.
Meckstroth reports that 19 industries are in the accelerating growth (recovery) phase of the business cycle; no industry is in the decelerating growth (expansion) phase; one industry, private nonresidential construction, appears to be in the accelerating decline (either early recession or mid-recession) phase; and seven are in the decelerating decline (late recession or very mild recession) phase of the cycle.
The report also offers economic forecasts for 24 of the 27 industries. The manufacturing sector will show improvement in 2010, with MAPI forecasting 20 of 24 industries to show gains, led by iron and steel production with expected 54 percent growth and industrial machinery with 42 percent growth. The recovery should continue in 2011 with growth likely in 22 of 24 industries, including nine industries which are predicted to grow at double-digit rates, led by housing starts at 63 percent—albeit from current historically low levels—and engines, turbines and power transmission equipment at 28 percent.

Manufacturing expanded again in May

Economic activity in the manufacturing sector expanded in May for the 10th consecutive month, and the overall economy grew for the 13th consecutive month, according to the nation's supply executives in the latest Manufacturing ISM Report On Business released today.

The PMI in May registered 59.7 percent, a decrease of 0.7 percentage point when compared to April's reading of 60.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 13th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 10th consecutive month.

Norbert Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee said, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (58.9 percent) corresponds to a 5.7 percent increase in real gross domestic product (GDP). In addition, if the PMI for May (59.7 percent) is annualized, it corresponds to a 6 percent increase in real GDP annually."

ISM's New Orders Index registered 65.7 percent in May, which is the same rate of growth reported for the preceding month. This is the 11th consecutive month of growth in the New Orders Index. A New Orders Index above 50.2 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The 15 industries reporting growth in new orders in May are: Wood Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Fabricated Metal Products; Miscellaneous Manufacturing; Paper Products; Primary Metals; Furniture & Related Products; Transportation Equipment; Computer & Electronic Products; Printing & Related Support Activities; Chemical Products; Nonmetallic Mineral Products; Machinery; and Food, Beverage & Tobacco Products. The only industry reporting a decrease in new orders in May is Petroleum & Coal Products.